Biden administration moves on regulating cryptocurrency

In the last month, the Biden administration has targeted digital assets in its federal budget proposal and separate executive order

Cryptocurrency, which has been on the move in popularity, reached a market cap of $3 trillion, up from $14 billion five years before, according to both the White House and the Treasury Department.

In the last month, the Biden administration has targeted digital assets in its federal budget proposal and separate executive order. The largest cryptocurrencies are Bitcoin and Ethereum, but others have gained ground among investors.

The Biden administration’s proposed budget for fiscal year 2023 would increase IRS reporting requirements on digital assets and change tax laws for cryptocurrency dealers and traders to net an estimated $11 billion in revenue from 2023 through 2032.

Our regulatory frameworks should be designed to support responsible innovation while managing risks, especially those that could disrupt the financial system and economy, Treasury Secretary Janet Yellen said Thursday during a speech on digital assets at American University.

As banks and other traditional financial firms become more involved in digital asset markets, regulatory frameworks will need to appropriately reflect the risks of these new activities and new types of intermediaries, such as digital asset exchanges and other digital native intermediaries, should be subject to appropriate forms of oversight, she said.

Biden issued an executive order in March directing the Treasury Department and other agencies to develop recommendations for regulating digital assets to prevent systemic financial risks, and to explore establishing a potential U.S. Central Bank for Digital Currency if the issuance is deemed in the national interest.

Some have also suggested that the introduction of a Central Bank Digital Currency, or CBDC, could contribute to a more efficient payment system, Yellen said.

As a liability of the central bank, a CBDC could become a form of trusted money comparable to physical cash, but potentially offering some of the projected benefits of digital assets, she said.

Thanks to a provision in the bipartisan infrastructure legislation last year, cryptocurrency exchanges, and entrepreneurs already face tougher reporting requirements than other financial assets, argued John Burlau, a senior fellow at the Competitive Enterprise Institute. The infrastructure act expanded the definitions of ‘broker’ and ‘digital assets.’

He contends the $11 billion revenue estimate, and broad definitions would prompt the IRS to be more aggressive in going after the industry.